A deceptive first quarter
At first glance, Q1 activity data appears positive compared to the recent past. However, this improvement results from a smaller-than-usual drop in activity during the holiday months, rather than from an increase in GDP. A significant part is explained by household consumption. Upon closer inspection, this may be a statistical illusion, likely to be corrected in subsequent revisions. Various indicators suggest that consumption remains stagnant, with prospects for moderate growth at best. The seemingly positive activity figures also reflect the historically mild drop in mining exports, not due to sectoral expansion, but to maintenance closures far below usual summer levels. The increase in public consumption expenditure, as significant as it is unusual, prompts caution regarding a possible reversal in the next data release. Unlike consumption and exports, investment showed unfavorable Q1 results.
Q1 labor market data were in line with expectations and recent trends. The labor market is gradually improving, consistent with economic activity and the usual lags. Wages and labor costs have continued to behave in line with their fundamentals. Personal services continued to lead increases in labor compensation.
CPI in April was consistent with a gradual and asymptotic convergence of inflation towards the Central Bank's target of 3%. The 12-month variation increased from 3.2% to 3.5%. Inflation continues to be led by energy, personal services and food prices. Looking forward, the recent exchange rate appreciation is expected to exert a deflationary effect in both the short and medium term. All in all, we now expect inflation to fluctuate around 4% for most of the rest of 2024, reaching 3.9% in December. Due to these statistical carryover effects, definitive convergence to 3% would only occur in Q2 2025.
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